Like private businesses, universities consolidate to cut costs

Workers at the former Augusta State University in Georgia are spending the summer putting up new signs, redesigning the school’s website, and carting furniture and files among offices.

There are new T-shirts in the bookstore, new logos on the business cards, a new fight song and alma mater—even a new name, for the first time, on the degrees of students who graduated in May.

Georgia Regents University, formed from the consolidation of Augusta State University and Georgia Health Sciences University. (Photo by Georgia Regents University)

What was known as Augusta State University when those students arrived as freshmen has been combined with the neighboring Georgia Health Sciences University to form Georgia Regents University. It’s a kind of private sector-style consolidation that is becoming increasingly common not only for public institutions, but also for nonprofit, independent ones that can pool their resources and cut their costs in a time of falling budgets and demands for more efficiency in higher education.

“Size matters, even in academia,” said Ricardo Azziz, president of the new, 10,000-student unified school, which he said cut administrative costs by 3 percent in just its first few weeks. “A lot of times we talk about students preferring small colleges, and that may be true, but it is much more costly to maintain all of the moving parts at a small college than at a larger university.”

There have been a few mergers of colleges and universities in the past; the University of Colorado at Denver combined with the University of Colorado Health Sciences Center in 2004, for example, and the Medical University of Ohio merged with the University of Toledo in 2006.

But the pace of such consolidations is picking up. In addition to Augusta State and Georgia Health Sciences University, Georgia has fused six other institutions into three, reducing the total number in its public system to 31. An earlier reorganization of 15 of the state’s technical-college campuses is already saving an estimated $6.7 million a year on overhead, having done away with highly paid presidents and administrators at campuses with as few as 500 students, and instead consolidated them.

The University of Medicine and Dentistry of New Jersey held its final graduation this spring before being divided up between two other public universities in that state, Rowan and Rutgers. The positions of chancellor of the 10-institution Louisiana State University System and president of Louisiana State University A&M, its flagship, have been combined into one job. A planning committee is now working on bringing the system’s separately run schools and campuses together by 2015. And in Baton Rouge, four technical colleges are being merged with Baton Rouge Community College.

The private, nonprofit City University of Seattle became an affiliate in April of the private, nonprofit National University System, based in California, joining several other small schools National has already absorbed into its network—including John F. Kennedy University, Spectrum Pacific Learning and WestMed College—with a centralized administration that allows for efficiencies of scale.

“It’s very logical, what’s happening,” said Richard Carter, who served in the dual role of vice chancellor for business operations for the National University System and executive vice president of National University before being named president of City University of Seattle this month. “Costs are going up, the number of new students is flat, and a lot of colleges and universities are experiencing the squeeze. Everyone is looking for ways to operate more efficiently, and this is clearly one option.”

After all, said Carter, in a challenging economic climate for colleges and universities, “You either get bigger, or you get smaller.”

The bond-rating agency Moody’s, in a January analysis that was otherwise grim about the financial prospects for higher education, highlighted the consolidation trend as one of the “bolder actions by universities leaders” that can “foster operating efficiencies and reduce overhead costs amid declining state support” by centralizing such services as marketing, fundraising, purchasing and information technology.

And in a report called “The Next Generation University,” the nonpartisan New America Foundation said higher education must adopt business practices that improve efficiency. It singled out, as examples, institutions that have reduced their cost per student and increased the number of students per employee.

“In the business world, the prevailing philosophy has long been that efficiencies and savings can be achieved by getting bigger and building economies of scale,” wrote the report’s authors. “That is why companies grow or merge with competitors.”

But while combining colleges and universities to reduce duplication may be logical, it isn’t easy.

Legislators who like having higher-education institutions in their districts often resist consolidations. So do students and alumni, who have loyalty to their schools, and faculty and staff who fear a loss of jobs.

“It’s not an easy thing politically,” said Richard Novak, senior vice president for programs and research at the Association of Governing Boards of Universities and Colleges. “You certainly have academic departments that will have on the surface the most to lose, and will be the most vocal critics. And faculty, who have tenure and job security, are the most likely to be outspoken about it.”

Fierce opposition in Baltimore derailed a proposal to merge the University of Maryland, Baltimore, and the University of Maryland at College Park. A bid in 2004 to combine three public universities in Maine also failed. And several proposals to merge historically black public colleges and universities with predominantly white ones—Southern University at New Orleans and the neighboring University of New Orleans, for instance, which was approved by the Louisiana Board of Regents but died in the state legislature—have been complicated by issues of race.

Combining institutions can sometimes make things worse instead of better. With its acquisition of parts of the University of Medicine and Dentistry of New Jersey, for instance, Rutgers will inherit $500 million in debt.

Where consolidations have been successful, they’ve been handled gingerly. Georgia Regents, for example, sent a survey to 46,000 students, faculty, staff and alumni before settling on a new logo, seal and school colors, and the first graduates this spring were given the option of receiving a second, commemorative degree with the name “Augusta State University” inscribed on it.

“A tremendous amount of diplomacy and savvy is required,” said Azziz. “The structure of higher education is very resistant to change. The academic community in general is a thoughtful community, but it’s also a ‘show-me’ community. It’s a community that’s skeptical by nature. Only time will allow us to demonstrate the benefits of consolidation.”

One way of doing this, say advocates of streamlining services by combining campuses, is to point out that it can not only cut costs, but improve quality and choice while also attracting more research funding.

With its new connection to a medical school, for example, Georgia Regents has launched joint MD/MBA and BS/MD programs. City University of Seattle offers a doctoral degree in education, which the many alumni of other National University affiliates who are teachers can now seamlessly pursue. And one of the arguments for bringing together the College Park and Baltimore campuses in Maryland was that they ranked 41st and 52nd, respectively, in research spending; combined, they would have jumped to ninth, which proponents of the merger said would have strengthened their position to attract more money for research.

“Not only do you save money on administrative costs; you create some synergy with academic programs,” Novak said. “You can build stronger programs by merging them, and provide opportunities [to] students they might not otherwise have.”

But the biggest reason for such consolidations, in a time of stretched resources, is to lower costs.

“There’s been a general sense that academia is not a business, which I certainly agree with. But it does have to follow business principles more closely than people would like to admit,” said Azziz.
“In the heyday of higher education, we didn’t have to look around and say, ‘Can you find some efficiencies here?’ It was just, ‘Are you doing okay? Do you need some more people? No problem,’ ” said Christel Slaughter, a consultant working on the reorganization at LSU. “But all of a sudden, when the music stops, you need a new system.”

Louisiana has cut $650 million from its state funding for higher education in the last five years.

“Everybody is realizing that we’re not going back to the way things used to be,” said Slaughter, herself an alumna and former LSU faculty member.

“Sure, there are pockets of resistance. Some of it is from people who care a lot about their turf and don’t want change. But change is coming—and you can either get on board or be left by the side of the road.”

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